U.S. SECURITIES AND EXCHANGE COMMISSION
                                  Washington, D.C. 20549

                                       FORM 10-QSB

(Mark One)

[X]  QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the quarterly period ended:  September 30, 1998

                                            or

[ ]  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from _____________________ to _______________________

Commission File Number:  33-89966

                            TREMONT ADVISERS, INC.
        (Exact name of small business issuer as specified in its charter)
           Delaware                                         06-1210532
State or other jurisdiction                  (I.R.S. Employer Identification No)
or incorporation or organization)            

                       555 Theodore Fremd Avenue, Rye, New York 10580
                   (Address of principal executive offices) (Zip Code)

                                  (914) 925-1140
                            (Issuer's telephone number)

          (Former name, former address and former fiscal year, if changed since 
           last report)

Check whether the issuer (1) filed all reports required to be filed by Section 
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter 
period) that the issuer was required to file such reports, and (2) has been 
subject to such filing  requirements for the past 90 days.

           Yes X           No 

APPLICABLE  ONLY TO ISSUERS  INVOLVED IN BANKRUPTCY  PROCEEDING  DURING THE 
                              PRECEDING FIVE YEARS

     Check  whether the issuer filed all  documents  and reports  required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the  distribution of
securities under a plan confirmed by a court. 

          Yes              No

                  APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares  outstanding of the Registrant's Class A Common Stock, 
$0.01 par value, as of the close of business on November 3, 1998 was 1,284,718,
and the number of shares  outstanding of the Registrant's  Class B Common Stock,
$0.01 par value, was 2,934,604 as of the same date.



<PAGE>



                                  INDEX

                         Tremont Advisers, Inc.

PART I - FINANCIAL INFORMATION



Item 1.  Financial Statements (Unaudited)                                   Page

Condensed Consolidated Balance Sheets - September 30, 1998 (unaudited)
and December 31, 1997 (audited)                                               1

Condensed Consolidated Statements of Income -
nine and three months ended September 30, 1998 and 1997                       2

Condensed Consolidated Statement of Shareholders' Equity -                    3
nine months ended September 30, 1998

Condensed Consolidated Statements of Comprehensive Income -
nine and three months ended September 30, 1998 and 1997                       4

Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 1998 and 1997                                 5

Notes to Condensed Consolidated Financial Statements                          6

Item 2.  Management's Discussion and Analysis                                11

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                   15

Item 4.  Submission of Matters to a Vote of Security Holders                 15

Item 6.  Exhibits and Reports on Form 8-K                                    15

Signature                                                                    15

Exhibit 10.53 - Tremont Advisers, Inc. 1998 Stock Option Plan                16

Exhibit 27 - Financial Data Schedule                                         25





<PAGE>





                           PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                              Tremont Advisers, Inc.
                     Condensed Consolidated Balance Sheets

<TABLE>
<S>                                                                               <C>                <C>        

                                                                            September 30        December 31
                                                                                1998               1997
                                                                             (Unaudited)         (Audited)
Assets
Current Assets
     Cash and cash equivalents                                                $1,322,228         $ 820,801
     Accounts receivable, less allowances for bad debts of
     $35,000 and $25,000, respectively                                         2,668,509         2,011,445
     Receivable from officer                                                      ---              200,000
     Income taxes receivable                                                     101,454             ---
     Prepaid expenses and other                                                  103,518           123,103
                                                                                --------          --------
Total current assets                                                           4,195,709         3,155,349

Investments in limited partnerships (cost - $1,513,467 and $803,467)           2,043,056         1,221,487
Investments in joint ventures (cost - $625,867 and $371,667)                     152,004            99,345
Other investments (cost - $86,000)                                                63,286            75,420
Fixed assets, net                                                                370,657           401,153
Other assets                                                                      30,075            28,958
                                                                               ---------           -------
Total assets                                                                  $6,854,787        $4,981,712
                                                                              ==========        ==========

Liabilities and shareholders' equity
Current liabilities
     Accounts payable                                                       $     54,991        $   50,490
     Accrued expenses                                                          1,329,096         1,112,734
     Income taxes payable                                                          ---               1,143
     Deferred income taxes payable                                                 5,600           171,500
                                                                                --------          --------
Total current liabilities                                                      1,389,687         1,335,867

     Deferred income taxes payable                                               503,073           160,600

Shareholders' equity
     Preferred Stock $1 par value, 350,000 shares authorized, issued
       and outstanding - none                                                       ---              ---
     Class A Common Stock, $0.01 par value, 5,000,000 shares
       authorized, 1,284,718 shares issued and outstanding                        12,847            12,847
     Class B Common Stock, $0.01 par value, 10,000,000 shares
       authorized, 2,934,604 and 2,802,104 shares issued and outstanding          29,346            28,021
     Additional paid in capital                                                5,088,229         4,725,293
     Accumulated deficit                                                        (163,132)       (1,280,916)
     Cumulative foreign currency translation adjustment                           (5,263)          ---
                                                                             ------------        ----------
Total shareholders' equity                                                     4,962,027         3,485,245
                                                                              ----------         ----------
Total liabilities and shareholders' equity                                    $6,854,787        $4,981,712
                                                                              ==========         ==========

</TABLE>
See accompanying notes.

Note:  The Condensed Consolidated Balance Sheet at December 31, 1997 has been 
       derived from the audited financial statements as of that date.

                                                       1


<PAGE>





                                              Tremont Advisers, Inc.

                                    Condensed Consolidated Statements of Income
                                                    (Unaudited)

<TABLE>
<S>                                                               <C>                          <C>        

                                                        Nine months ended                 Three months ended
                                                            September 30                       September 30
                                                       1998             1997              1998             1997
                                                       ---------------------              ---------------------

Revenues
Consulting fees                                        $6,982,921       $3,802,441        $2,646,792    $1,486,172
Performance fees                                          324,344          246,260             7,856        68,319
Commissions                                               316,203          253,359            97,994       131,115
                                                       ----------       ----------        ----------     ---------
Total revenues                                          7,623,468        4,302,060         2,752,642     1,685,606

Expenses
Compensation                                            2,784,124        2,230,974           990,767       810,705
General and administrative                              1,895,107        1,019,008           739,498       449,290
Consulting                                                993,728          492,486           332,787       214,573
Depreciation and amortization                             133,623           88,850            51,164        34,358
                                                       ----------       ----------          ---------    ---------
Total expenses                                          5,806,582        3,831,318         2,114,216     1,508,926
                                                       ----------        ---------         ----------    ---------
                                                        1,816,886          470,742           638,426       176,680

Equity earnings of limited partnerships, net              111,569          183,698           (39,899)       92,023
Loss from operations of joint ventures, net              (201,541)         (59,871)          (66,381)      (19,823)
Other income, net                                          28,964           21,768            13,223         5,218
Minority interest                                          17,500             ---             17,500          ---
                                                       ----------        ---------         ----------    --------- 

Income before taxes                                     1,773,378          616,337           562,869       254,098
Provision for income taxes                                655,594          139,677           246,412        70,077
                                                      -----------        ---------         ----------    --------- 

Net income                                             $1,117,784     $    476,660       $   316,457   $   184,021
                                                       ==========     ============       ============   ==========

Basic earnings per Common Share                        $     0.27     $       0.12       $      0.08   $      0.05
                                                       ==========     ============       ============   ==========

Diluted earnings per Common Share                      $     0.26     $       0.12       $      0.07   $      0.04
                                                       ==========     ============       ============   ==========

</TABLE>
See accompanying notes.


                                                       2


<PAGE>
<TABLE>
                                                                             Tremont Advisers, Inc.
                                                              Consolidated Statement of Shareholders' Equity


<S>                                                    <C>                       <C>               <C>                  <C>       
                               Common Stock                               Additional                     Currency      Total
                            Shares Outstanding           Par Value        Paid In         Accumulated    Translation   Shareholders'
                         Class A        Class B   Class A      Class B    Capital         Deficit        Adjustment    Equity
                         ----------------------------------------------------------------------------------------------------------
Balance at
 December 31, 1997        1,284,718    2,802,104   $12,847   $   28,021  $4,725,293       ($1,280,916)     $--           $3,485,245

Issuance of  Class B
 Common Stock - exercise
 of Director Options         --            2,500      --             25       9,350            --           --                9,375

Issuance of  Class B
 Common Stock - exercise
Of Officers Options          --          130,000      --          1,300     227,450            --           --              228,750

Income tax benefits
 related to exercise of
 Officers Options            --            --         --            --      126,136            --           --              126,136

Foreign currency 
 translation adjustment      --            --         --            --        --               --          ( 5,263)          (5,263)

Net income                   --            --         --            --        --            1,117,784        --           1,117,784
                  -----------------------------------------------------------------------------------------------------------------
                          1,284,718    2,934,604   $12,847    $  29,346  $5,088,229      ($   163,132)     ($5,263)      $4,962,027
                  =================================================================================================================

</TABLE>
 See accompanying notes.


                                                       3


<PAGE>



<TABLE>

                                                                    Tremont Advisers, Inc.

                                                    Condensed Consolidated Statements of Comprehensive Income
                                                                         (Unaudited)


<S>                                                     <C>                              <C>      
                                             Nine months ended               Three months ended
                                                September 30                    September 30
                                             1998            1997           1998           1997
                                          -----------------------------     -------------------

Net income                                 $1,117,784    $   476,660    $   316,457     $   184,021
Other comprehensive income
  Foreign currency translation adjustment      (5,263)        ---            (5,263)         ---
                                          ------------    -----------     -----------    ------------
Comprehensive income                       $1,112,521    $   476,660    $   311,194     $   184,021
                                           ==========     ===========     ============    ===========

</TABLE>
See accompanying notes.

                                                                           4

<PAGE>





                                    Tremont Advisers, Inc.

                       Condensed Consolidated Statements of Cash Flows
                                           (Unaudited)

<TABLE>
<S>                                                               <C>                     
      
                                                                  Nine months ended
                                                                     September 30
                                                                  1998            1997
                                                                ---------------------------

Operating activities
Net income                                                        $1,117,784       $ 476,660
Adjustments to reconcile net income
  to net cash provided by operating activities:
          Depreciation and amortization                              133,623          88,850
          Equity earnings of limited partnerships                   (111,569)       (183,698)
          Loss from operations of joint ventures                     201,541          59,871
          Loss from other investments                                 12,134           2,909
          Deferred income taxes                                      176,573           ---
          Foreign currency translation adjustment                     (5,263)          ---
          Minority interest                                          (17,500)          ---
          Changes in operating assets and liabilities:
            Accounts receivable, net                                (657,064)          3,870
            Receivable from officer                                  200,000            ---
            Prepaid expenses and other                                19,585         (99,005)
            Accounts payable                                           4,501          30,185
            Accrued expenses                                         216,362        (239,678)
            Deferred revenue                                           ---            12,500
            Income taxes, net                                       (102,597)         25,950
            Other assets                                              (1,117)           ---
                                                                   -----------     ----------
Net cash provided by operating activities                          1,186,993         178,414

Investing activities
Purchase of fixed assets                                            (103,127)       (264,663)
Investments in limited partnerships                                 (710,000)       (685,000)
Investments in joint ventures                                       (254,200)        (37,683)
Proceeds from sale of joint ventures                                   ---             9,638
Proceeds from sale of other investments                                ---            84,000
                                                                  -----------      ----------
Net cash used by investing activities                             (1,067,327)       (893,708)

Financing Activities
Net proceeds from the issuance of Class B Common Stock                 --            723,254
Exercise of stock options                                            238,125          ---
Income tax benefits related to stock options exercised               126,136          ---
Issuance of equity to minority interest holder                        17,500          ---
                                                                  -----------     -----------
Net cash provided by financing activities                            381,761         723,254

Net increase in cash                                                 501,427           7,960
Cash and cash equivalents at beginning of period                     820,801         551,710
                                                                  -----------     -----------
Cash and cash equivalents at end of period                        $1,322,228       $ 559,670
                                                                  ==========       =========


</TABLE>
See accompanying notes.


                                                       5

<PAGE>





                               Tremont Advisers, Inc.

          Notes to Condensed Consolidated Financial Statements (Unaudited)



NOTE A - Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim financial  information and with the instructions to Form 10-QSB and Item
310(b)  of  Regulation  S-B.  Accordingly,  they  do  not  include  all  of  the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation have
been included.  Operating  results for the nine and three months ended September
30, 1998 are not necessarily  indicative of the results that may be expected for
the year  ending  December  31,  1998.  For  further  information,  refer to the
consolidated  financial statements and footnotes thereto included in the Tremont
Advisers,  Inc. (the "Company") Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities  and  disclosures  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from such estimates.

     On July 13, 1998, the Company formed Tremont  Investment  Management,  Inc.
("TIMI"),  an investment adviser and portfolio manager located in Canada.  TIMI,
which is 65% owned by the Company, has applied for registration with the Ontario
Securities  Commission  as  investment  counsel and  portfolio  manager and as a
limited market dealer under the Securities Act (Ontario). At September 30, 1998,
the Company had invested $132,500 in TIMI.

     On July 14, 1998, the Company formed Tremont Futures,  Inc. ("TFI"). TFI is
currently in the process of applying for registration with the Commodity Futures
Trading  Commission  and the National  Futures  Association  as a commodity pool
operator and commodity trading advisor.

     Principles  of   Consolidation:   The  condensed   consolidated   financial
statements   include  the  accounts  of  the  Company  and  its  majority  owned
subsidiaries.  The Company's investment in affiliates,  in which it owns between
20% and 50%,  are  accounted  for in  accordance  with the  equity  method.  All
material  intercompany   transactions  and  accounts  have  been  eliminated  in
consolidation. 

     Net Income  per  Common  Share:  Basic  earnings  per share is based on the
weighted average number of shares of Common Stock outstanding during the period.
Diluted  earnings  per share is based on the weighted  average  number of shares
outstanding  during the period adjusted for the effects of dilutive  securities.

     Minority  Interest:  The Company  presently owns 65% of TIMI. For financial
reporting  purposes,  the  assets,  liabilities  and  earnings of TIMI have been
included in the Company's condensed consolidated financial statements. Tremont's
joint venture partner's 35% interest in TIMI has been  recorded as a minority
interest for which it paid $17,500. 

                                       6

<PAGE>



     Foreign  Currency  Translation:  The Company  accounts for  translation  of
foreign currency in accordance with Statement of Financial  Accounting Standards
No. 52,  "Foreign  Currency  Translation."  The assets  and  liabilities  of the
Company's Canadian  subsidiary are translated at the current exchange rate as of
the balance  sheet date,  while  capital  accounts are  translated at historical
rates.  The revenues and expenses are translated  using an average exchange rate
during the period.  Adjustments  resulting from these translations are reflected
in a separate  component of  shareholders'  equity  titled  "Cumulative  foreign
currency translation adjustment."

     Concentrations  of Credit Risk: The Company's  accounts  receivable are not
concentrated  in any specific  geographic  region,  but are  concentrated in the
investment  industry.  Although the Company's exposure to credit risk associated
with  nonpayment  by customers is affected by conditions  within the  investment
industry, no customer exceeded 10% of the Company's net receivables at September
30, 1998.

     Income Taxes:  The provision  for income taxes  includes  federal and state
taxes  currently  payable and those  deferred  because of temporary  differences
between the financial statement and the tax basis of assets and liabilities. The
income  tax  provision  also  gives  effect  to  permanent  differences  between
financial and taxable  income,  resulting in a lower effective tax rate than the
statutory income tax rate. 

Deferred  income  taxes  were not  provided  on  certain  undistributed  foreign
earnings  ($200,000 at September 30, 1998) of Tremont (Bermuda) Limited ("TBL"),
one of the  Company's  wholly-owned  subsidiaries,  because  such  undistributed
earnings  are  expected  to be  reinvested  indefinitely  overseas.  A valuation
allowance is recorded,  based on available evidence, when it is more likely than
not that some portion or all of the deferred tax assets will not be realized.

NOTE B - Investments in Limited Partnerships

     At  September  30, 1998 and December 31,  1997,  Tremont  Partners,  Inc.'s
("TPI")  investment  in The Broad Market Fund,  L.P. was $776,798 and  $688,592,
representing  .42% and .51% of the fund's net assets,  respectively.  Summarized
financial unaudited information of The Broad Market Fund, L.P. is as follows:
<TABLE>
               <S>                                                <C>          

                                 September 30, 1998          December 31, 1997
                                 ------------------          -----------------

         Total assets              $184,574,394                 $162,511,390
         Total liabilities            1,113,399                   28,567,596

                                           Nine months ended September 30
                                        1998                       1997
                                    -------------------------------------------
         Net investment income      $ 2,414,595                $   1,755,910
         Net realized and unrealized
         gain on investments         16,544,253                   12,524,845
                                    ------------                 -----------
         Net income                 $18,958,848                  $14,280,755
                                    ===========                  ===========


</TABLE>
                                         7
<PAGE>





NOTE B - Investments in Limited Partnerships (continued)

     At September  30, 1998,  TPI's  investments  in the Meridian  Horizon Fund,
L.P.,  GamTree,  L.P., The F.W.  Thompson Fund,  L.P. and The Broad Market Prime
Fund,  L.P.  were  $350,981,  $180,650,  $82,106 and $54,293,  respectively.  At
December  31,  1997,  TPI's  investments  in the Meridian  Horizon  Fund,  L.P.,
GamTree,  L.P., The F.W.  Thompson  Fund,  L.P. and The Broad Market Prime Fund,
L.P. were $299,483, $186,717, $46,695 and zero, respectively.  Effective July 1,
1998, TPI resigned as a co-general  partner to Meridian  Horizon Fund,  L.P. The
aggregated  summarized  unaudited  financial  information of these entities,  as
reported by the Funds' underlying investment managers, is as follows:

<TABLE>
    <S>                                <C>                         <C>   
     

                                  September 30, 1998       December 31, 1997
                                   -----------------       -----------------
Total assets                         $450,289,129             $249,504,158
Total liabilities                      80,637,905               60,805,159

                                         Nine months ended September 30
                                            1998             1997
                                        --------------------------------
Net investment loss                 ($  3,046,274)          ($     992,966)
Net realized and unrealized gain
on investments                         31,616,406               14,449,520
                                       -----------             ------------
Net income                            $28,570,131              $13,456,554
                                       ===========             ===========
</TABLE>
     Effective  September 1, 1998,  American  Masters Market Neutral Fund,  L.P.
("AMF")  became  the  newest  addition  to the  Company's  line  of  proprietary
products.  This domestic  multi-manager  limited  partnership was formed for the
purpose of achieving long term capital appreciation irrespective of stock market
volatility.  TFI is the general partner of the limited partnership and, as such,
is involved in the day-to-day management of the partnership.  AMF will pay TFI a
monthly management fee based on the net asset value of the partnership as of the
end of each month.  At September 30, 1998,  TFI had an investment of $598,228 in
AMF representing 54.7% of the funds' net assets.

                                                            September 30, 1998
                                                         ----------------------

Total Assets                                                     $1,126,772 
Total Liabilities                                                    32,890

                                                                Period ended
                                                            September 30, 1998
                                                            ------------------

Net investment loss                                             ($11,118)
Net realized and unrealized gain on investments                     ---
                                                               ------------
Net loss                                                        ($11,118)
                                                               ============

NOTE C - Accrued Expenses

Accrued expenses consist of the following:
<TABLE>
               <S>                      <C>                      <C>       

                                   September 30, 1998         December 31, 1997
                                   -------------------        -----------------
Professional and consulting fees       $ 844,527                  $ 741,105
Compensation                             346,499                    200,000
Note payable                              51,852                     87,840
Employee benefit plan                     37,400                     46,566
Printing and graphics                     34,263                     18,000
Other                                     14,555                     19,223
                                        ---------                 ----------
                                      $1,329,096                 $1,112,734
                                       ==========                 ==========

</TABLE>
The note payable  consists of a 30-month  note payable,  maturing  October 1999,
relating to the purchase of certain insurance policies.

                                      8

<PAGE>


NOTE D - Shareholders' Equity

     On August 7, 1998, the Company  amended its  Certificate  of  Incorporation
increasing  the  authorized  number of shares of Class B Common Stock,  $.01 par
value  per  share,  from  five  million   (5,000,000)   shares  to  ten  million
(10,000,000) shares. The amendment also provided that all or any shares of Class
A Common Stock,  $.01 par value per share, be convertible,  at the option of the
holder thereof, into an equivalent number of shares of Class B Common Stock.

NOTE E - Stock Options

     During May 1998, a director  exercised  options to purchase 2,500 shares of
Class B Common  Stock at $3.75 per share.  During  August  1998,  two  executive
officers  exercised  options and  purchased  125,000 and 5,000 shares of Class B
Common  Stock at $1.75 and  $2.00  per  share,  respectively.  A summary  of the
Company's  stock option activity for the nine months ended September 30, 1998 is
as follows:

   Outstanding-beginning of period:                                 416,666
   Granted                                                           ---
   Exercised                                                       (132,500)
   Lapsed                                                             ---
                                                                  ----------
   Outstanding-end of period                                         284,166
                                                                  ==========

   Exerciseable at end of period                                     221,666

    On September 17, 1998, the  Company's Board of Directors adopted, subject to
shareholder  approval,  the Tremont  Advisers,  Inc. 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for the issuance of up to 200,000 shares of
Class B Common Stock in connection  with stock options and other awards  granted
under such plan. The 1998 Plan  authorizes the grant of incentive  stock options
and  non-qualified  stock  options  and stock  rights.  The  exercise  price for
incentive  stock  options  shall not be less than the fair  market  value of the
underlying  shares on the date of grant.  The exercise  price for  non-statutory
stock  options  and  stock  rights  shall  not be less  than the  minimum  legal
consideration required therefore under the laws of any jurisdiction in which the
Company,  or its  successors  in interest,  may be  organized.  The 1998 Plan is
administered  by a committee of the Board of  Directors.  The  committee has the
authority to determine the employees to whom awards will be made,  the amount of
awards,  and the other terms and  conditions of the awards.  As of September 30,
1998, no options have been granted under the 1998 Plan.

                                      9

<PAGE>





NOTE F - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<S>                                       <C>                            <C>

                                              Nine months ended                 Three months ended
                                                 September 30                     September 30
                                           1998              1997             1998             1997
                                       ----------------------------          -------------------------
Numerator:
         Net Income - numerator for
         basic and dilutive earnings
         per share (income available
         to common shareholders)       $1,117,784       $   476,660        $    316,457      $   184,021

Denominator:
         Denominator for basic
         earnings per share - weighted
         average shares                 4,111,941         3,951,912           4,159,974        4,086,822

Effect of dilutive securities:
         Stock options                    135,407           122,866             199,028          141,786
         Denominator for diluted
         earnings per share; adjusted
         weighted-average shares and
         assumed conversions            4,247,348         4,074,778           4,359,003        4,228,608

Basic earnings per share           $         0.27    $         0.12       $        0.08   $         0.05
Diluted earnings per share         $         0.26    $         0.12       $        0.07   $         0.04
 
</TABLE>
NOTE G - Contingencies

     The  Company  is being  sued by a former  employee  for  alleged  breach of
contract and  defamation.  The Company  believes that the suit is without merit;
however,  should the  plaintiff  prevail the Company  believes that it is likely
that the damages will not be material to the  Company's  financial  condition or
operations.

NOTE H - Employee Benefit Plan

     On September 17, 1998, the Board of Directors amended the Tremont Advisers,
Inc. 401(k) Savings Plan,  effective January 1, 1998, to allow employer matching
contributions and to allocate the Company's employer discretionary contributions
based   upon  the   Company's   fiscal   year   profitability,   as  related  to
pre-established  financial  objectives.  The Company's matching contribution for
the year ending  December  31,  1998 will be 25 cents for each $1 a  participant
contributes  as an employee  salary  deferral up to a limit of 6.25% of eligible
compensation  ($160,000 maximum for 1998).  Contributions will be made annually,
subsequent to year end, based upon the previous year's salary deferrals.

NOTE I - Subsequent Events

     The Company  has agreed to acquire  TASS  Management  Limited  ("TASS"),  a
London  based  company  specializing  in  alternative  investment  and  research
services.  The Company will merge TASS's  extensive  database with the Company's
proprietary  database to create a global  database of 2,200  managers  and hedge
funds.  TASS will  primarily sell research and data, as well as new products and
services.  The acquisition is expected to be completed  during the first quarter
of 1999.

                                        10

<PAGE>





Item 2.           Management's Discussion and Analysis

     Tremont  Advisers,   Inc.'s  (the  "Company")  revenues  are  derived  from
consulting and specialized  investment  services  provided to institutional  and
other clients,  as well as management fees from certain funds under  management.
Consulting  fees  are  generally  a  function  of the  amount  of  assets  under
management and the percentage fees charged to clients. Management fees are based
on a  percentage  of the assets of the managed  fund and are  usually  paid on a
monthly or quarterly  basis.  The Company  also  receives  asset-based  fees for
investments  placed by its wholly owned foreign  subsidiary,  Tremont  (Bermuda)
Limited  ("TBL"),  in certain  offshore mutual funds. The Company provides other
consulting  services generally on a fixed-fee basis,  whether as annual retainer
fees or single project fees. The Company's  principal operating expenses consist
of its  costs of  personnel  and  independent  consultants.  It is  management's
intention to continue the  Company's  focus on launching new products and taking
advantage  of its  growing  world-wide  relationships  in  order to  expand  its
operations.

     Consulting  fees  increased   $3,180,480,   or  approximately  83.6%,  from
$3,802,441  for the nine months ended  September 30, 1997, to $6,982,921 for the
nine months ended September 30, 1998. At the Company's wholly owned  significant
domestic subsidiary,  Tremont Partners, Inc. ("TPI"),  consulting fees increased
from  $2,275,454 for the nine months ended  September 30, 1997 to $4,665,750 for
the nine months ended  September 30, 1998.  The increase at TPI is primarily due
to increases in revenues from its proprietary  products,  The Broad Market Prime
Fund,  L.P.   ($1,107,413)   and  The  Broad  Market  Fund,   L.P.   ($330,998),
respectively.  In  addition,  revenues  from the  Meridian  Horizon  Fund,  L.P.
increased  by $375,038  over the similar  period in 1997.  Consulting  fees also
increased  domestically as a result of Tremont  Securities,  Inc.  ("TSI"),  the
Company's  wholly-owned  broker dealer subsidiary ,realized consulting fees from
the sale of limited  partnerships.  These fees  amounted to $71,506 for the nine
months  ended  September  30,  1998 and did not occur in the nine  months  ended
September 30, 1997. TBL's consulting fees increased from $1,526,987 for the nine
months  ended  September  30,  1997 to  $2,245,665  for the  nine  months  ended
September  30,  1998.  The  increase at TBL is  primarily  due to  increases  in
revenues from its proprietary products, the Class B Shares of the Kingate Global
Fund,  Ltd.  ($401,875) and Tremont Broad Market,  LDC  ($100,946),  as well as
several  new  clients.  The  increase in revenue  was  primarily  as a result of
increases  or  decreases  in the  value  of the  assets  within  the  respective
investment vehicles, as well as a larger client base.

     Consulting  fees  increased   $1,160,620,   or  approximately  78.1%,  from
$1,486,172 for the three months ended  September 30, 1997, to $2,646,792 for the
three months ended  September 30, 1998.  TPI's  consulting  fees  increased from
$825,633 for the three months ended  September  30, 1997 to  $1,733,126  for the
three months ended  September 30, 1998.  The increase at TPI is primarily due to
increases in revenues from its proprietary products The Broad Market Prime Fund,
L.P.  ($441,266) and The Broad Market Fund, L.P.  ($116,304),  respectively.  In
addition,  revenue from the Chrysler Minority Equity Trust increased by $199,523
over the similar period in 1997. Consulting fees also increased  domestically as
TSI  realized  consulting  fees from the sale of limited  partnership  interest.
These fees amounted to $19,231 for the three months ended September 30, 1998 and
did not occur during the three months ended September 30, 1997. TBL's consulting
fees  increased  from $660,539 for the three months ended  September 30, 1997 to
$894,435 for the three months ended  September 30, 1998.  The increase at TBL is
primarily due to increases in revenues from its proprietary products,  the Class
B Shares of the Kingate  Global Fund,  Ltd.  ($196,956),  as well as several new
clients.  The  increases in revenues  was  primarily as a result of increases or
decreases in the value of the assets within the respective  investment vehicles,
as well as a larger client base.

     Performance  fees for the nine months ended September 30, 1998 increased 
$78,084,  or 31.7%, compared  to the  nine  months  ended  September  30,  1997,
primarily as a result of  underlying  investment  vehicles  outperforming  their
established  benchmarks.  Performance  fees for the three months ended September
30, 1998 decreased $60,463 or 88.5% compared to the three months ended September
30, 1997,  primarily as a result of unfavorable  changes in market conditions in
1998.


                                       11
<PAGE>





Commissions  received  by TSI increased  by $62,844 or 24.8% for the nine
months ended  September 30, 1998 compared to the nine months ended September 30,
1997,  primarily as a result of increased  trading  activities by TSI's clients.
For the three months ended September 30, 1998,  commissions decreased by $33,121
or 25.3% compared to the three months ended  September 30, 1997,  primarily as a
result of decreased trading activities by TSI's clients.

     The three  months ended  September  30, 1998 have been  difficult  ones for
hedge funds. In particular the markets were roiled by a global flight to quality
caused by  Russia's  implicit  default on their  sovereign  debt.  The flight to
quality  has dried up  liquidity,  particularly  in the bond  markets.  The well
publicized  debacles of recent  months were  products of leverage  combined with
illiquidity.  Until liquidity returns,  the financial markets can be expected to
be choppy.  Despite  this  environment,  the Compan s  proprietary  products are
expected to perform  relatively  favorably in these markets because the products
have limited credit exposure and limited or no leverage. In addition, management
expects  performance  fee revenue to increase  during periods of positive market
conditions,  but management cannot predict with any accuracy whether such income
from  performance  fees will  continue  in the  future  due to  changing  market
conditions and other outside factors.

     Compensation  expense  increased  $553,150 or 24.8% and  $180,062 or 22.2%,
respectively,  for the nine and three months ended  September 30, 1998, over the
similar  periods  in 1997,  as a result of the  Company's  continued  efforts to
attract and retain qualified employees.  Such efforts resulted in an increase in
the number of  employees to 36 at  September  30, 1998 from 31 at September  30,
1997.  In addition  to the  increase  in the number of  employees,  compensation
expense  also  increased  due to an  increase  in  bonuses  to be granted by the
Company to its employees, as well as salary increases for certain employees that
became effective  January 1, 1998. In addition,  health care costs increased due
to the increase in the number of employees.

     General  and  administrative  expenses  increased  $876,099 or  86.0%  and
$290,208 or 64.6%,  respectively,  for the nine and three months ended September
30,  1998,  as  compared to similar  periods in 1997.  These  increases  consist
primarily of increases in rent,  professional fees, travel and entertainment and
other related  expenses.  The increases  were  partially  offset by decreases in
telecommunications  due to an upgrade of service and equipment.  The increase in
general and  administrative  expenses was  primarily due to costs related to the
Company's continued expansion to service its business growth.

     Consulting  expenses  increased $501,242 or 101.8% and $118,214 or 55.1%,
respectively for the nine and three months ended September 30, 1998, as compared
to the  similar  periods  of 1997,  primarily  as a result  of the  increase  in
revenues from the clients that participate in revenue sharing arrangements.  For
example,  TSI  has an  arrangement  for  securities  clearance  services  with a
clearing broker dealer whereby a certain percentage of the commissions earned is
shared.  Also,  TPI and TBL have revenue  sharing  arrangements  which relate to
certain clients.

     Depreciation  and  amortization  increased  $44,773 or 50.4% and $16,806 or
48.9%,  respectively,  for the nine and three months ended September 30, 1998 as
compared to similar  periods in 1997.  The increase  results  from  purchases of
fixed assets  after  September  30,  1997.  These  purchases  included  computer
upgrades,  new  software,  the  expansion  of the computer  network,  as well as
furniture and fixtures for the Company's new executive offices. The Company made
capital  expenditures  of $103,127  during the nine months ended  September  30,
1998, and wrote-off fully depreciated capital improvements ($13,636) of TSI due
to the closing of its Vermont branch office.

     Equity  earnings  of limited  partnerships  decreased  $72,129 or 39.3% and
$131,922 or 143.4%, respectively,  for the nine and three months ended September
30, 1998, compared to similar periods in 1997. These decreases are primarily due
to decreased  performance  compared to similar  periods in 1997,  as a result of
unfavorable market conditions in 1998.

                                        12

<PAGE>

     Cash  provided by  operations  was  $1,186,993  for the nine  months  ended
September  30, 1998, as compared to $178,414 in the  comparable  period of 1997.
The  $641,124  increase  in net  income  for the period was offset by changes in
working capital accounts. These changes include increases in accounts receivable
and income taxes  offset by  decreases in a receivable  from officer and accrued
expenses.  The positive cash flow provided by operating activities was offset by
cash used in  investing  activities  of  $1,067,327  for the nine  months  ended
September 30, 1998.

     The Company  believes it has adequate apital  resources and working capital
to bring to market those products currently in the developmental stage, and that
the revenue  stream  from  these,  as well as from  existing  products,  will be
sufficient to support future growth.  The Company has no material  short-term or
long-term debt obligations.

     The  Company  owns  options  to  purchase  8,000  shares of a  non-publicly
registered  investment  adviser  specializing  in 401(k)  investment  allocation
advice over the  Internet.  The options  were  granted at $10 per share and have
vested or will vest 25% on January 1, 1996; 25% in equal installments at the end
of each month  between  January 1, 1997 and December 31, 1997;  and 50% in equal
installments  at the end of each month between  January 1, 1998 and December 31,
1998.  The options  have a five year term and were valued at zero by the Company
at September 30, 1998.

     The Company owns 30,000  shares of common  stock of a non-public  financial
services  company  formed in 1996.  The shares were received by the Company as a
result of an  employee's  participation  as a board member of such  company.  At
September 30, 1998 the shares of common stock were valued at zero.

     The  Company,  with a joint  venture  partner,  formed  Tremont  Investment
Management,  Inc.  ("TIMI").  TIMI,  65% owned by the  Company,  has applied for
registration with the Ontario  Securities  Commission as investment  counsel and
portfolio  manager  and as a limited  market  dealer  under the  Securities  Act
(Ontario).

     On July 14, 1998, the Company formed Tremont Futures,  Inc. ("TFI"). TFI is
currently in the process of applying for registration with the Commodity Futures
Trading  Commission  and the National  Futures  Association  as a commodity pool
operator and commodity trading advisor.

     On August 7, 1998, the Company  amended its  Certificate  of  Incorporation
increasing  the  authorized  number of shares of Class B Common Stock,  $.01 par
value  per  share,  from  five  million   (5,000,000)   shares  to  ten  million
(10,000,000) shares. The amendment also provided that Class A Common Stock, $.01
par value per share, be convertible,  at the option of the holder thereof,  into
an equivalent number of Class B Common Stock, $.01 par value per share.

On September 17, 1998,  the  Company's  Board of Directors  adopted,  subject to
shareholder  approval,  the Tremont  Advisers,  Inc. 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for the issuance of up to 200,000 shares of
Class B Common Stock in connection  with stock options and other awards  granted
under such plan. The 1998 Plan  authorizes the grant of incentive stock options,
non-qualified  stock options and stock rights.  The exercise price for incentive
stock  options  shall not be less than the fair market  value of the  underlying
shares on the date of grant. The exercise price for non-statutory  stock options
and stock rights shall not be less than the minimum legal consideration required
therefor under  the laws of any  jurisdiction  in which  the  Company,  or its
successors in interest,  may be organized.  The 1998 Plan is  administered  by a
committee  of the  Board  of  Directors.  The  committee  has the  authority  to
determine the employees to whom awards will be made,  the amount of awards,  and
the other terms and  conditions  of the awards.  As of September  30,  1998,  no
options have been granted under the 1998 Plan.

     During May 1998, a director exercised options and purchased 2,500 shares of
Class B Common  Stock at $3.75 per share.  During  August  1998,  two  executive
officers  exercised  options and purchased 125,000 and 5,000 shares of Class B
Common Stock at $1.75 and $2.00 per share, respectively.

                                    13

<PAGE>

     The  Company  is being  sued by a former  employee  for  alleged  breach of
contract and  defamation.  The Company  believes that the suit is without merit;
however,  should the  plaintiff  prevail the Company  believes that it is likely
that the damages will not be material to the  Company's  financial  condition or
operations.

The Year 2000 issue is the result of computer  programs  being written using two
digits rather than four to determine the applicable year. Any computer  programs
that have time  sensitive  software may  recognize a date using "00" as the year
1900  rather  than the year  2000.  This  could  result in a system  failure  or
miscalculation causing significant disruptions of operations,  including,  among
other things, a temporary inability to process transactions or engage in similar
normal business activities. Based on a recent assessment, the Company determined
that all but one of its  computer  systems are  currently  enabled for year 2000
entries,  and the Company  believes  such system  will be  compliant  within the
second  quarter  of 1999.  The cost of such  assessment  was  immaterial  to the
Company.  However,  the Company  could be  adversely  affected  if the  computer
systems used by the  Company's  service  providers  do not properly  process and
calculate date-related  information and data from and after January 1, 2000. The
Company is currently in communication with these other companies to determine if
there is reasonable cause for concern.

Certain  statements  in this  Management's  Discussion  and Analysis  constitute
"forward  looking  statements"  within  the  meaning of the  Private  Securities
Litigation Reform Act of 1995. Such forward looking statements involve known and
unknown  risks,  uncertainties  and other  factors  which  may cause the  actual
results,  performance, or achievements of the Company to be materially different
from any future results,  performance,  or achievements  expressed or implied by
such forward looking statements.  These forward looking statements were based on
various factors and were derived utilizing  numerous  important  assumptions and
other factors that could cause actual results to differ materially from those in
the forward looking statements, including, but not limited to: uncertainty as to
the Company's  future  profitability  and the  Company's  ability to develop and
implement   operational   and  financial   systems  to  manage  rapidly  growing
operations,  competition in the Company's existing and potential future lines of
business,  and other factors. Other factors and assumptions not identified above
were also involved in the derivation of these forward  looking  statements,  and
the failure of such other assumptions to be realized,  as well as other factors,
may also cause actual results to differ  materially  from those  projected.  The
Company  assumes no  obligation to update these  forward  looking  statements to
reflect  actual  results,  changes in  assumptions  or changes in other  factors
affecting such forward looking statements.

                                        14
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

     The  Company  is being  sued by a former  employee  for  alleged  breach of
contract and  defamation.  The Company  believes that the suit is without merit;
however,  should the  plaintiff  prevail the Company  believes that it is likely
that the damages will not be material to the  Company's  financial  condition or
operations.

Item 4. Submission of Matters to a Vote of Security Holers

On August 7, 1998, a majority of the shareholders  granted their written consent
in  accordance  with  Delaware  law to a  proposed  amendment  to the  Company's
Certificate  of  Incorporation,  initiated by the Company's  Board of Directors,
which  increased the authorized  number of shares of Class B Common Stock,  $.01
par value  per  share,  from  five  million  (5,000,000)  shares to ten  million
(10,000,000)  shares and amended the terms of the Class A Common Stock, $.01 par
value per  share,  to provide  that all or any of such  shares of Class A Common
Stock be convertible,  at the option of the holders thereof,  into a like number
of shares of Class B Common Stock.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits
     The following exhibits are included herein;
       Exhibit 10.53 - Tremont Advisers, Inc. 1998 Stock Option Plan
       Exhibit 27 - Financial Data Schedule

(b)  Reports on Form 8-K
     There were no reports on Form 8-K filed during the quarter ended September
     30, 1998.


                                     
Signature

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                            Tremont Advisers, Inc.

Date: November 4, 1998                      /s/ Stephen T. Clayton
                                            Stephen T. Clayton
                                            Chief Financial Officer
                                            (Duly authorized Officer and
                                            Principal Financial and Accounting
                                            Officer)


                                         15

<PAGE>




                               TREMONT ADVISERS, INC.
                                 1998 STOCK PLAN

         1. Purpose.  The purpose of the Tremont Advisers,  Inc. 1998 Stock Plan
(the  "Plan") is to  encourage  key  employees of Tremont  Advisers,  Inc.  (the
"Company")  and of any  present or future  parent or  subsidiary  of the Company
(collectively, "Related Corporations") and other individuals who render services
to  the  Company  or  a  Related  Corporation,  by  providing  opportunities  to
participate  in the ownership of the Company and its future  growth  through (a)
the grant of options which qualify as "incentive  stock options"  ("ISOs") under
Section  422(b) of the Internal  Revenue Code of 1986,  as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company  ("Awards");  and (d)  opportunities  to make
direct  purchases  of  stock  in  the  Company  ("Purchases").   Both  ISOs  and
Non-Qualified Options are referred to hereafter  individually as an "Option" and
collectively as "Options." Options,  Awards and authorizations to make Purchases
are referred to hereafter  collectively as "Stock  Rights." As used herein,  the
terms  "parent" and  "subsidiary"  mean  "parent  corporation"  and  "subsidiary
corporation,"  respectively,  as those  terms are  defined in Section 424 of the
Code.

         2. Administration of the Plan.

                  (a)  Board or  Committee  Administration.  The  Plan  shall be
administered  by a committee (the  "Committee") of the Board of Directors of the
Company (the  "Board").  The  Committee,  to the extent  required by  applicable
regulations  under Section 162(m) of the Code, shall be comprised of two or more
"outside  directors" (as defined in applicable  regulations  thereunder) who, to
the extent required by Rule 16b-3 promulgated under the Securities  Exchange Act
of 1934,  as  amended,  or any  successor  provision  ("Rule  16b-3"),  shall be
disinterested administrators within the meaning of Rule 16b-3. All references in
this  Plan to the  "Committee"  shall  mean the Board if no  Committee  has been
appointed.  Subject to ratification of the grant or  authorization of each Stock
Right by the Board (if so required by applicable  state law), and subject to the
terms of the Plan,  the  Committee  shall have the authority to (i) determine to
whom (from among the class of employees  eligible  under  paragraph 3 to receive
ISOs) ISOs shall be granted,  and to whom (from  among the class of  individuals
and entities  eligible under  paragraph 3 to receive  Non-Qualified  Options and
Awards and to make Purchases)  Non-Qualified Options,  Awards and authorizations
to make  Purchases  may be granted;  (ii)  determine  the time or times at which
Options or Awards  shall be granted  or  Purchases  made;  (iii)  determine  the
purchase price of shares subject to each Option or Purchase,  which prices shall
not be less than the Minimum  Price  specified in  paragraph  6; (iv)  determine
whether  each Option  granted  shall be an ISO or a  Non-Qualified  Option;  (v)
determine  (subject to  paragraph  7) the time or times when each  Option  shall
become  exercisable  and the  duration of the exercise  period;  (vi) extend the
period  during  which  outstanding  Options may be  exercised;  (vii)  determine
whether restrictions are to be imposed on shares subject to Options,  Awards and
Purchases and the nature of such restrictions,  if any, and (viii) interpret the
Plan and  prescribe  and rescind  rules and  regulations  relating to it. If the
Committee  determines to issue a  Non-Qualified  Option,  it shall take whatever
actions it deems  necessary,  under Section 422 of the Code and the  regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation  and  construction by the Committee of any provisions of the Plan
or of any  Stock  Right  granted  under  it  shall  be  final  unless  otherwise
determined  by the Board.  The  Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem advisable. No member of
the Board or the Committee shall be liable for any action or determination  made
in good faith with respect to the Plan or any Stock Right granted under it.

                                        16

<PAGE>
                  (b)  Committee  Actions.  The  Committee may select one of its
members as its  chairman,  and shall hold meetings at such time and places as it
may determine. A majority of the Committee shall constitute a quorum and acts of
a majority  of the  members of the  Committee  at a meeting at which a quorum is
present,  or acts  reduced to or  approved  in writing by all the members of the
Committee (if consistent with applicable  state law), shall be the valid acts of
the  Committee.  From  time to time  the  Board  may  increase  the  size of the
Committee  and appoint  additional  members  thereof,  remove  members  (with or
without cause) and appoint new members in substitution therefor,  fill vacancies
however caused,  or remove all members of the Committee and thereafter  directly
administer the Plan.

                  (c) Grant of Stock  Rights to Board  Members.  Subject  to the
provisions of paragraph 3 below,  if applicable,  Stock Rights may be granted to
members of the Board.  All grants of Stock  Rights to members of the Board shall
in all other  respects be made in  accordance  with the  provisions of this Plan
applicable  to  other  eligible  persons.  Consistent  with  the  provisions  of
paragraph 3 below,  members of the Board who either (i) are  eligible to receive
grants of Stock  Rights  pursuant  to the Plan or (ii) have been  granted  Stock
Rights may vote on any matters  affecting the  administration of the Plan or the
grant of any Stock Rights pursuant to the Plan, except that no such member shall
act upon the granting to himself or herself of Stock Rights, but any such member
may be counted in  determining  the  existence of a quorum at any meeting of the
Board  during  which action is taken with respect to the granting to such member
of Stock Rights.

                  (d)  Exculpation.  No member of the Board shall be  personally
liable for  monetary  damages  for any action  taken or any  failure to take any
action in  connection  with the  administration  of the Plan or the  granting of
Stock  Rights under the Plan,  provided  that this  subparagraph  2(d) shall not
apply to (i) any breach of such  member's  duty of loyalty to the Company or its
stockholders,  (ii) acts or omissions not in good faith or involving intentional
misconduct  or a knowing  violation of law,  (iii) acts or omissions  that would
result in  liability  under  Section 174 of the General  Corporation  Law of the
State of Delaware,  as amended,  and (iv) any transaction  from which the member
derived an improper personal benefit.

                  (e) Indemnification. Service on the Committee shall constitute
service as a member of the Board. Each member of the Committee shall be entitled
without  further  act on his or her part to  indemnity  from the  Company to the
fullest  extent  provided by  applicable  law and the Company's  Certificate  of
Incorporation  and/or  By-laws in connection  with or arising out of any action,
suit  or  proceeding  with  respect  to the  administration  of the  Plan or the
granting of Stock Rights thereunder in which he or she may be involved by reason
of his or her being or having been a member of the Committee,  whether or not he
or she continues to be a member of the Committee at the time of the action, suit
or proceeding.

     3. Eligible Employees and Others.  ISOs may be granted only to employees of
the  Company  or any  Related  Corporation.  Non-Qualified  Options,  Awards and
authorizations  to make  Purchases  may be granted to any  employee,  officer or
director  (whether or not also an employee) or  consultant of the Company or any
Related  Corporation.  The Committee may take into  consideration  a recipient's
individual  circumstances  in  determining  whether to grant a Stock Right.  The
granting of any Stock Right to any  individual or entity shall  neither  entitle
that  individual or entity to, nor  disqualify  such  individual or entity from,
participation in any other grant of Stock Rights.


                                        17
<PAGE>

    4.  Stock Rights.

                    (a) Number of Shares  Subject to Rights.  The stock subject
to Stock Rights shall be authorized but unissued shares of Class B Common Stock 
of the Company, par value $.01 per share (the "Common  Stock"), or shares of 
Common Stock reacquired by the Company in any manner.  The aggregate number of
shares which may be issued pursuant to the Plan is 500,000, subject to 
adjustment as provided in paragraph  13. If any Stock Right granted under the
Plan shall expire or terminate for any reason without having bee  exercised in
full or shall cease for any reason to be exercisable in whole or in part, the 
shares of Common Stock subject to such Stock Right shall again be available for
grants of Stock Rights under the Plan.

                  (b) Nature of Awards.  In addition  to ISOs and  Non-Qualified
Options,  the Committee may grant or award other Stock Rights,  as follows:  (i)
Purchases.  Participants  may be granted  the right to  purchase  Common  Stock,
subject to such  restrictions as may be specified by the Committee  ("Restricted
Shares"). Such restrictions may include, but are not limited to, the requirement
of  continued   employment  with  the  Company  or  a  Related  Corporation  and
achievement  of  performance  objectives.  The  Committee  shall  determine  the
purchase price of the Restricted  Shares, the nature of the restrictions and the
performance  objectives,  all of  which  shall  be set  forth  in the  agreement
relating to each right awarded to purchase  Restricted  Shares.  The performance
objectives  shall  consist  of (A) one or more in  business  criteria  and (B) a
target  level or  levels of  performance  with  respect  to such  criteria.  The
performance   objectives  shall  be  objective  and  shall  otherwise  meet  the
requirements of Section 162(m)(4)(C) of the Code. (ii) Awards.  Awards of Common
Stock may be made to participants as a bonus or as additional  compensation,  as
may be determined by the Committee.

         5. Granting of Stock Rights. Stock Rights may be granted under the Plan
at any time on or after  October 1, 1998 and prior to September  30,  2007.  The
date of grant of a Stock Right under the Plan will be the date  specified by the
Committee at the time it grants the Stock Right;  provided,  however,  that such
date shall not be prior to the date on which the  Committee  acts to approve the
grant.  Options  granted  under the Plan are intended to qualify as  performance
based  compensation  to the extent required under proposed  Treasury  Regulation
Section 1.162-27.

         6.       Minimum Option Price; ISO Limitations.

                (a) Price for  Non-Qualified  Options,  Awards and Purchases. 
The exercise price per share specified in the agreement relating to each Non-
Qualified Option granted,  and the  purchase  price  per share of stock  granted
in any Award or authorized  as a  Purchase,  under  the Plan  shall in no event
be less than the minimum legal consideration required therefor under the laws of
any jurisdiction in which the Company or its successors iinterest may be
organized.  Non-Qualified Options granted under the Plan, with an exercise price
less than the fair market value per share of Common Stock on the date of grant, 
are intended to qualify as performance-based compensation under Section 162(m)of
the Code  and any  applicable  regulations  thereunder.  Any such  Non-Qualified
Options granted under the Plan shall be exercisable  only upon the attainment of
a pre-established, objective performance goal established by the Committee.

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<PAGE>

                  (b) Price for ISOs. The exercise price per share  specified in
the agreement relating to each ISO granted under the Plan shall not be less than
the fair market  value per share of Common  Stock on the date of such grant.  In
the case of an ISO to be granted to an employee  owning  stock  possessing  more
than ten  percent  (10%) of the total  combined  voting  power of all classes of
stock of the Company or any Related  Corporation,  the price per share specified
in the  agreement  relating  to such ISO shall not be less than one  hundred ten
percent (110%) of the fair market value per share of Common Stock on the date of
grant.  For purposes of determining  stock ownership  under this paragraph,  the
rules of Section 424(d) of the Code shall apply.

                  (c) $100,000 Annual  Limitation on ISO Vesting.  Each eligible
employee may be granted  Options treated as ISOs only to the extent that, in the
aggregate  under this Plan and all  incentive  stock option plans of the company
and any related  Corporation,  ISOs do not become exercisable for the first time
by such  employee  during any calendar  year with respect to stock having a fair
market  value  (determined  at the time the ISOs  were  granted)  in  excess  of
$100,000. The Company intends to designate any Options granted in excess of such
limitation as Non-Qualified Options.

                  (d)  Determination  of Fair Market  Value.  If, at the time an
Option is granted under the Plan, the Company's Common Stock is publicly traded,
"fair  market  value"  shall be  determined  as of the date of grant  or, if the
prices or quotes  discussed in this sentence are  unavailable for such date, the
last  business  day for which such prices or quotes are  available  prior to the
date of grant and shall mean (i) the  average (on that date) of the high and low
prices of the Common  Stock on the  principal  national  securities  exchange on
which the  Common  Stock is  traded,  if the  Common  Stock is then  traded on a
national  securities  exchange;  or (ii) the last  reported  sale price (on that
date) of the Common Stock on The American Stock Exchange, if the Common Stock is
not then  traded on a national  securities  exchange;  or (iii) the  closing bid
price (or  average of bid prices)  last quoted (on that date) by an  established
quotation service for  over-the-counter  securities,  if the Common Stock is not
reported on The  American  Stock  Exchange.  If the Common Stock is not publicly
traded at the time an Option is  granted  under the Plan,  "fair  market  value"
shall mean the fair value of the Common  Stock as  determined  by the  Committee
after  taking  into  consideration  all  factors  which  it  deems  appropriate,
including, without limitation,  recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length.

         7.  Option  Duration.  Subject to earlier  termination  as  provided in
paragraphs 9 and 10 or in the  agreement  relating to such  Option,  each Option
shall expire on the date specified by the  Committee,  but not more than (i) ten
years  from the date of grant in the case of  Options  generally  and (ii)  five
years from the date of grant in the case of ISOs  granted to an employee  owning
stock  possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(b). Subject to earlier termination as provided in paragraphs 9
and 10,  the term of each  ISO  shall  be the  term  set  forth in the  original
instrument granting such ISO.

     8.  Exercise of Option.  Subject to the  provisions of paragraphs 9 through
12,  each  Option  granted  under  the Plan  shall be  exercisable  as  follows:

                (a) Vesting.  The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such installments as
the Committee may specify.

                                        19

<PAGE>
                 (b) Full Vesting of Installments.  Once an installment becomes 
exercisable, it shall remain  exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.  

                 (c) Partial  Exercise.  Each Option or installment may be 
exercised at any time or from time to time,  in whole or in part,  for up to the
total number of shares with respect to which it is then exercisable.

                (d)  Acceleration  of  Vesting.  The  Committee  shall have the 
right to accelerate  the date that any  installment  of any Option  becomes 
exercisable; provided  that the  Committee  shall not,  without the  consent of
an  optionee, accelerate the permitted  exercise date of any installment of any 
Option granted to any employee as an ISO if such acceleration  would violate the
annual vesting limitation  contained in Section 422(d) of the Code, as described
in paragraph 6(c).

         9.  Termination  of  Employment.  Unless  otherwise  specified  in  the
agreements  relating to such ISOs,  if an ISO optionee  ceases to be employed by
the  Company  and all  Related  Corporations  other  than by  reason of death or
disability or as otherwise specified in paragraph 10, no further installments of
his or her ISOs shall become exercisable, and his or her ISOs shall terminate on
the earlier of (a) ninety (90) days after the date of  termination of his or her
employment,  or (b) their  specified  expiration  dates.  For  purposes  of this
paragraph 9, employment shall be considered as continuing  uninterrupted  during
any bona fide leave of absence (such as those attributable to illness,  military
obligations or governmental service) provided that the period of such leave does
no exceed 90 days or, if longer,  any period during which such optionee's  right
to reemployment is guaranteed by statute.  A bona fide leave of absence with the
written  approval of the Committee  shall not be considered an  interruption  of
employment   under  this  paragraph  9,  provided  that  such  written  approval
contractually  obligates the Company or any Related  Corporation to continue the
employment of the optionee  after the approved  period of absence.  ISOs granted
under the Plan shall not be affected by an change of employment  within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any  grantee  of any Stock  Right  the  right to be  retained  in
employment  or other service by the Company or any Related  Corporation  for any
period of time.

         10.      Death; Disability; Voluntary Termination; Breach.

                 (a) Death.  If an ISO optionee ceases to be employed by the 
Company and all Related  Corporations  by  reason  of his or her  death, any ISO
owned by such optionee may be exercised,  to the extent  otherwise  exercisable
on the date of death, by the estate, personal representative  r beneficiary who
has acquired the ISO by will or by the laws of descent and distribution, until
the earlier of (i) the specified expiration date of the ISO or (ii) one (1) year
from the date of the optionee's death.

                  (b)  Disability.  If an ISO optionee  ceases to be employed by
the  Company and all Related  Corporations  by reason of his or her  disability,
such optionee shall have the right to exercise any ISO held by him or her on the
date of termination of employment,  for the number of shares for which he or she
could have  exercised  it on that date,  until the earlier of (i) the  specified
expiration date of the ISO or (ii) one (1) year from the date of the termination
of  the  optionee's  employment.   For  the  purposes  of  the  Plan,  the  term
"disability"  shall mean "permanent and total  disability" as defined in Section
22(e)(3) of the Code or any successor statute.

                                         20
<PAGE>
                  (c)  Voluntary   Termination;   Breach.  If  an  ISO  optionee
voluntarily  leaves the employ of the Company and all  Related  Corporations  or
ceases to be employed by the Company and all Related Corporations by reason of a
finding by the Committee,  after full  consideration  of the facts  presented on
behalf of both the Company and the Optionee,  that the ISO optionee has breached
his or her  employment  or service  contract  with the  Company  or any  Related
Corporation,  or has been  engaged in  disloyalty  to the  Company or any Relate
Corporation, then, in either such event, in addition to immediate termination of
the Option,  the ISO optionee shall  automatically  forfeit all shares for which
the Company has not yet delivered share  certificates upon refund by the Company
of the exercise  price of such Option.  Notwithstanding  anything  herein to the
contrary,  the Company may withhold delivery of share  certificates  pending the
resolution  of  any  inquiry  that  could  lead  to  a  finding  resulting  in a
forfeiture.

     11.  Assignability.  No Stock Right shall be assignable or  transferable by
the grantee except by will, by the laws of descent and  distribution  or, in the
case of  Non-Qualified  Options  only,  pursuant to a valid  domestic  relations
order.  Except as set forth in the previous  sentence,  during the lifetime of a
grantee each Stock Right shall be exercisable only by such grantee.           

     12.  Terms and  Conditions  of Options.  Options  shall be evidenced by
instruments  (which need not be  identical)  in such forms as the  Committee may
from time to time  approve.  Such  instruments  shall  conform  to the terms and
conditions  set forth in  paragraphs  6 through 11 hereof and may  contain  such
other  provisions as the Committee deems  advisable  which are not  inconsistent
with the Plan,  including  restrictions  applicable  to  shares of Common  Stock
issuable  upon  exercise  of  Options.   The  Committee  may  specify  that  any
Non-Qualified  Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may  determine.  The Committee may from time to time confer  authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such  instruments.  The proper officers of
the Company are authorized and directed to take any and all action  necessary or
advisable from time to time to carry out the terms of such instruments.

     13.  Adjustments.  Upon the occurrence of any of the following  events,  an
optionee's  rights with respect to Options  granted to such  optionee  hereunder
shall  be  adjusted  as  hereinafter  provided,  unless  otherwise  specifically
provided in the written  agreement  between the optionee and the Company related
to such Option: 

                 (a) Stock  Dividends and Stock Splits.  If the shares of Common
Stock shall be subdivided  or combined into a greater or smaller  number of 
shares or if the Company  shall  issue  any  shares of Common  Stock as a stock
dividend on its outstanding  Common Stock, the number of shares of Common Stock
deliverable upon the  exercise of Options shall be appropriately increased  or
decreased proportionately, and appropriate adjustments shall be made in the 
purchase price per share to reflect such subdivision, combination or stock 
dividend.

                 (b) Consolidations or Mergers. If the Company is to be 
consolidated with or acquired by another entity in a merger,  sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),  the 
Committee or the board of directors of any entity assuming the  obligations of 
the Company  hereunder (the "Successor  Board"),   shall,  as  to  outstanding 
Options,   either  (i)  make appropriate provision for the continuation of such
Options by substituting on a

                                       21

<PAGE>
equitable  basis for the  shares  then  subject to such  Options  either (A) the
consideration  payable with respect to the outstanding shares of Common Stock in
connection  with  the  Acquisition,   (B)  shares  of  stock  of  the  surviving
corporation  or  (C)  such  other   securities  as  the  Successor  Board  deems
appropriate,  the fair market value of which shall  approximate  the fair market
value  of the  shares  of  Common  Stock  subject  to such  Options  immediately
preceding the Acquisition; or (ii) upon written notice to the optionees, provide
that all Options must be  exercised,  to the extent then  exercisable,  within a
specified number of days of the date of such notice,  at the end of which period
the Options shall  terminate;  or (iii)  terminate all Options in exchange for a
cash payment equal to the excess of the fair market value of the shares  subject
to such  Options  (to the  extent  then  exercisable)  over the  exercise  price
thereof.

                  (c)  Recapitalization  or  Reorganization.  In the  event of a
recapitalization  or  reorganization  of the Company  (other than a  transaction
described in subparagraph (b) above) pursuant to which securities of the Company
or of another  corporation are issued with respect to the outstanding  shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase  price paid upon such  exercise the  securities he or she would
have  received  if  he  or  she  had   exercised   such  Option  prior  to  such
recapitalization or reorganization.

                  (d) Modification of ISO's.  Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs  (a), (b) or (c) with respect to ISOs
shall be made only after the Committee,  after  consulting  with counsel for the
Company,  determines  whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code) or would cause
any adverse tax  consequences  for the  holders of such ISOs.  If the  Committee
determines that such  adjustments  made with respect to ISOs would  constitute a
modification  of such  ISOs or  would  cause  adverse  tax  consequences  to the
holders, it may refrain from making such adjustments.

                  (e) Dissolution or Liquidation. In the event of the proposed 
dissolution or liquidation of the Company,  each Option will terminate
immediately prior to the consummation  of such proposed  action or at such other
 time and subject to such other conditions as shall be determined by the 
Committee.


                  (f)  Issuances of Securities. Except as expressly provided  
herein, no issuance by the Company of shares of stock of any class,or securities
convertible into shares of stock of any class,  shall affect,  and no adjustment
by reason  thereof  shall be made with respect to, the number or price of shares
subject to Options.  No adjustments  shall be made for dividends paid in cash or
in property other than securities of the Company.

                 (g) Fractional  Shares. No fractional shares shall be issued 
under the Plan and the optionee shall receive from the Company cash in lieu of
such  fractional
shares.

                 (h)  Adjustments.  Upon the  happening  of any of the events
described in subparagraphs  (a), (b) or (c) above,  the class and aggregate  
number of shares set  forth  in  paragraph  4 hereof  that are  subject to Stock
Rights which previously have been or subsequently may be granted under the Plan
shall also be appropriately  adjusted to reflect the events  described in such
subparagraphs.  The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and,  subject to 
paragraph 2, its  determination shall be conclusive.


                                    22

<PAGE>
         14. Means of Exercising  Options. An Option (or any part or installment
thereof)  shall be  exercised  by giving  written  notice to the  Company at its
principal  office  address,  or to such  transfer  agent  as the  Company  shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase  price thereof  either (a) in United  States  dollars in
cash or by check,  (b) at the discretion of the Committee,  through  delivery of
shares of Common  Stock  having a fair market  value equal as of the date of the
exercise to the cash exercise price of the Option,  (c) at the discretion of the
Committee,  by delivery of the grantee's personal recourse note bearing interest
payable  not less than  annually  at no less than 100% of the lowest  applicable
Federal rate, as define din Section  1274(d) of the Code,  (d) at the discretion
of the Committee and consistent with applicable law,  through the delivery of an
assignment  to the Company of a sufficient  amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company,  which sale shall
be at  the  participant's  direction  at the  time  of  exercise,  or (e) at the
discretion of the Committee,  by any combination of (a), (b), (c) and (d) above.
If the  Committee  exercises its  discretion  to permit  payment of the exercise
price of an ISO by means of the methods set forth in clauses  (b),  (c),  (d) or
(e) of the preceding sentence,  such discretion shall be exercised in writing at
the time of the grant of the ISO in question.  The holder of an Option shall not
have the rights of a  shareholder  with  respect  to the shares  covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares.  Except as  expressly  provided  above in  paragraph  13 with respect to
changes in capitalization  and stock dividends,  no adjustment shall be made for
dividends  or similar  rights for which the record  date is before the date such
stock certificate is issued.

         15. Term and  Amendment of Plan.  This Plan was adopted by the Board on
September  17, 1998,  subject,  with respect to the  validation  of ISOs granted
under the Plan,  to approval of the Plan by the  stockholders  of the Company at
the next Meeting of Stockholders, or in lieu thereof, by written consent. If the
approval of  stockholders  is not obtained on or prior to August 31,  1999,  any
grants of ISOs  under the Plan made  prior to that date will be  rescinded.  The
Plan shall  expire at the end of the day on September  30,  2007,  (except as to
Options  outstanding  on that date).  Subject to the  provisions  of paragraph 5
above,  Options may be granted  under the Plan prior to the date of  stockholder
approval of the Plan.  The Board may terminate or amend the Plain in any respect
at any time,  except  that,  without the approval of the  stockholders  obtained
within 12 months before or after the Board adopts a resolution  authorizing  any
of the  following  actions:  (a) the total  number of shares  that may be issued
under the Plan may not be increased (except by adjustment  pursuant to paragraph
13);  (b) the  benefits  accruing  to  participants  under  the  Plan may not be
materially  increased;  (c) the requirements as to eligibility for participation
in the Plan may not be materially  modified;  (d) the  provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (e) the provisions
of paragraph  6(b)  regarding the exercise  price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); (f) the expiration date of the Plan may not be extended;  and (g) the Board
may not take any action  which  would cause the Plan to fail to comply with Rule
16b-3. Except as otherwise provided in this paragraph 15, in no event may action
of the Board or  stockholders  alter or impair the rights of a grantee,  without
such grantee's consent, under any Option previously granted to such grantee.

     16.  Application  of Funds.  The proceeds  received by the Company from the
sale of shares  pursuant to Options granted and Purchases  authorized  under the
Plan shall be used for general corporate purposes. 


                                      23

<PAGE>
         17. Notice to Company of Disqualifying Disposition. By accepting an ISO
granted under the Plan,  each  optionee  agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying  Disposition (as described
in Sections  421,  422 and 424 of the Code and  regulations  thereunder)  of any
stock  acquired  pursuant to the  exercise  of ISOs  granted  under the Plan.  A
Disqualifying  Disposition is generally any  disposition  occurring on or before
the later of (a) the date two years  following  the date the ISO was  granted or
(b) the date one year following the date the ISO was exercised.

         18.  Withholding  of Additional  Income  Taxes.  Upon the exercise of a
Non-Qualified  Option, the grant of an Award, the making of a Purchase of Common
Stock  for less  than its fair  market  value,  the  making  of a  Disqualifying
Disposition  (as defined in paragraph 17), the vesting or transfer of restricted
stock or  securities  acquired on the  exercise of an Option  hereunder,  or the
making  of a  distribution  or  other  payment  with  respect  to such  stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation  includible in gross income.  The Committee in its  discretion  may
condition (i) the exercise of an Option,  (ii) the grant of an Award,  (iii) the
making of a Purchase  of Common  Stock for less than its fair market  value,  or
(iv) the vesting or transferability  of restricted stock or securities  acquired
by exercising an Option,  on the grantee's making  satisfactory  arrangement for
such withholding. Such arrangement may include payment by the grantee in cash or
by check of the amount of the  withholding  taxes or, at the  discretion  of the
Committee,  by the grantee's  delivery of previously held shares of Common Stock
or the withholding  from the shares of Common Stock otherwise  deliverable  upon
exercise of a Option shares  having an aggregate  fair market value equal to the
amount of such withholding taxes.

     19. Governmental  Regulation.  The Company's obligation to sell and deliver
shares of the Common  Stock  under this Plan is subject to the  approval  of any
governmental  authority required in connection with the authorization,  issuance
or sale of such shares. 

     Government  regulations  may impose  reporting or other  obligations on the
Company  with respect to the Plan.  For example,  the Company may be required to
send tax information  statements to employees and former employees that exercise
ISOs under the Plan,  and the Company  may be  required to file tax  information
returns  reporting the income received by grantees of Options in connection with
the Plan.

         20.  Governing Law. The validity and  construction  of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of Delaware.

                                        24